Distribution Strategies Essay

In the contemporary business environment, the application of effective distribution strategies often becomes the key factor that determines the commercial success of a company. At the same time, it is necessary to remember about profound changes that are currently taking place in the world economy and socioeconomic relations, which naturally affect the behavior of customers. In such a situation, companies need to react adequately on the changes in the behavior of consumers in order to be able to apply distribution strategies, which could meet interests and needs of consumers. On the other hand, traditional distribution strategies that are widely applied by many companies are not always customer-centered, instead they may be producer-centered strategies that companies may apply. However, in recent years the development of multichannel strategies becomes more and more popular as well as the search of alternatives to the traditional distribution strategies, which do not always work as effectively as companies need to provide the high level of sale rates and stimulate the customer loyalty to their brand.

At the same time, the search of alternatives and the application of effective distribution strategies may be quite difficult, especially for such large companies as BP. In this respect, it should be said that social responsibilities of such companies becomes of a paramount importance. At any rate, nowadays, it is possible to estimate that the social responsibility of a company may constitute an important part of its distribution strategy and affect the attitude of customers to the company and its brand significantly. This is why nowadays distribution strategies should be viewed in broader terms than they used to be in the past as the changes in the business environment and customer behavior forces companies to change their strategies too.

Literature review

a. The current situation and the importance of social responsibility

Speaking about the current development of the market and distribution strategies, it should be pointed out that the latter are, to a significant extent, determined by the behavior of customers as well as major economic trends. To put it more precisely, companies are traditionally oriented on customers’ needs and preferences and they traditionally develop their distribution strategy to meet the needs and interests of customers (Schmitt, 2001). At the same time, in the contemporary world the growth of the competition between companies forces them to look for new, more effective distribution strategies. The major reason for the growth of the competition is the process of globalization which is accelerated by the technological progress and introduction of innovations, which can enforce consistently the position of a company. For instance, the emergence of e-companies in the late 1990s which is still ongoing was based on the wide introduction of new IT, which stimulated the creation of new demands and standards customers wanted to satisfy (Mohrman, 1998).

In the situation when the competition tends to grow, it is quite natural that many companies focused on the formation of the positive brand image and development of customers’ loyalty to their brands (Madsen and Shafritz, 1990). At this point, distribution strategies apparently played the crucial role because the effectiveness of distribution strategies, to a significant extent, defined the image of the company and attitude of customers to its brand.

Obviously, in the contemporary business environment the positive public image of a company becomes extremely important and it can even affect its distribution because the negative image can decrease the effectiveness of the distribution, whatever strategy a company selects, while the positive public image may enhance the effectiveness of the selected distribution strategy (Schein, 1999). In such a context, it is necessary to pay a particular attention to the social responsibility of companies since it is through the social responsibility it is possible to shape the positive image of the company and make its products and services more attracting to customers.

At the same time, it is necessary to understand the fact that without the social responsibility companies may face serious difficulties in their distribution. What is meant here is not necessarily the negative public image of companies, but what is more important for distribution proper is the problems with the development of the effective system of distribution channels (Pine and Gilmore, 1999). In this respect, it should be said that nowadays many companies operate worldwide. However, many countries and regions of the world are poverty stricken, though they are commercially attractive for companies’ penetration in local markets. This is exactly where a serious challenge to their distribution chain arises.

What is meant here is the fact that many developing countries have poor roads, electricity and communications infrastructure. Naturally, in such a situation, the effectiveness of the distribution decreases substantially in the result of the inability of companies to develop normally their logistics. The latter problem is apparently determined by the poverty, which prevents countries from the development of effective infrastructure (Vachani and Smith, 2008). As a result, the poor infrastructure leads to poor results in the distribution. In addition, the situation is deteriorated by the lack of means to deliver information about products and services of the company to its potential customers, who are simply unable to fully assess the potential advantages of these products and services because they do not have information about it or even because they are illiterate (Vachani and Smith, 2008).

In such a context, specialists (Vachani and Smith, 2008) recommend developing socially responsible distribution.

Basically, companies targeting at the mass consumers should attempt to reach the bottom of the social pyramid that naturally implies overcoming challenges imposed by poverty and poor socioeconomic development of some regions.

In fact, the development of infrastructure and programs which could inform potential customers about benefits and advantages of products and services of a company may be viewed as a part of the distribution strategy of a company (Stewart, 2004). Such socially responsible distribution will not only create the positive image of a company, but it will also facilitate its penetration in the local market and increase the effectiveness of distribution since the development of infrastructure will facilitate logistics and make distribution chains more effective.

b. Basic distribution strategies

At the same time, the changes in the business environment and customer behavior do not necessarily mean that traditional distribution strategies are absolutely ineffective at the present days. In fact, many companies still use traditional distribution strategies that have already proved their effectiveness. In this respect, it should be said that it is possible to distinguish several basic distribution strategies that are currently the most widely spread in the contemporary business environment. Specialists (De Simone, 2002) distinguish seven basic distribution strategies that are currently applied: advice-driven and event-driven, which are customer-centric strategies; direct sales force and independent sales force, which are producer centric strategies; institutional and worksite, which are sponsored market strategies; and multi-channel strategy which is a diversified strategy.

Basically, De Simone (2002) points out that nowadays companies do not focus on the application of one strategy only. Instead, they attempt to use two or even more distribution strategy to increase the effectiveness of their distribution system. In this respect, it should be said that the effectiveness of distribution increases consistently when diverse distribution strategies are applied because such an approach provides companies with larger opportunities for maneuver in the current business environment. In other words, companies’ distribution strategies become more flexible compared to the situation when only one distribution strategy is applied.

In such a context, it is quite natural that the multi-channel distribution strategy becomes particularly popular in the contemporary business environment and more and more companies prefer to use this strategy to develop their distribution chains (Vachani and Smith, 1999). The effectiveness of such approach is determined by the current situation on world markets and basic trends in the development of the contemporary business. What is meant here is the fact that the process of globalization stimulates the development of the competition and, at the same time, it stimulates companies to the international market expansion. As international markets are open due to the elimination of fiscal barriers and progress of free trade and due to the technological progress that facilitates transportation and logistics consistently, companies can operate worldwide. Consequently, they can develop their business in different parts of the world and, therefore, distribute their products and services in different markets.

This means that the conditions of the distribution will differ since international markets can have a different potential and customers have different traditions and habits.

As a result, one and the same strategy may work perfectly well in one country, while it will totally fail in another country with different customer habits and behavior. In such a way, sales rate may depend not on the quality of the product or service but on the strategy of its distribution. For instance, in well-developed countries hypermarkets may be effectively used for the distribution of a product, while in poorly developed countries of the third world, even chains of supermarkets may be poorly developed. Consequently, to succeed in both markets a company will need to apply two different distribution strategies in different markets.

In such a situation, the use of multi-channel strategy really proves to be the most effective and perspective for the further development of a company’s distribution chain because it can make the distribution more flexible and more adaptable to different market environment and conditions.

 

c. Alternative strategies

Basically, the changes in the business environment and customer behavior still forces companies to look for new strategies to be applied, along with traditional strategies, which have already proved their effectiveness, but still need certain correction or modification to be applied more effectively in the contemporary business environment. In this respect, the application of several distribution strategies is only one of possible solutions of the problem of increasing of the effectiveness of distribution.

At this point, it is possible to refer to Don Wilson (2006) who argues that in the contemporary business environment companies have consistently larger opportunities for the development of their distribution strategies than they had in the past. He underlines the fact that alternative distribution strategies can be developed by companies and he explains such larger opportunities by a considerable progress made in the field of technology, logistics, economy, etc. Namely Don Wilson (2006) states that “today’s combination of deregulated transportation, affordable communications, access to real-time information, GPS locators, and economical RF sensors permit virtually limitless combination of distribution strategy” (60).

Obviously, the substantial progress made in different fields has improved logistics and opened new perspectives for more effective distribution. In such a situation, it is very important for companies to benefit from potential advantages of the development of alternative distribution strategies, though it is hardly possible to give some concrete recommendations on the universal level because each company should develop its own distribution strategy. Nevertheless, it is necessary to take into consideration several factors that affect the formation of the distributional strategy in the contemporary business environment. According to Don Wilson (2006), such factors are company needs, objectives, and possible product or market opportunities.

In fact, needs, objectives, possible product or market opportunities may be viewed as key factors that determine the choice of the distribution strategy or strategies by a company. As the contemporary business environment is changing, it is quite natural that all these factors are susceptible to changes too. As a result, companies are forced to search either alternative to traditional distribution strategies or modify traditional ones.

BP’s distributional strategies

a. The current position of BP

British Petroleum Company is the largest oil companies operating worldwide. Basically, these companies are leaders in the oil and energy industry and, at the same time, they are major competitors in the international markets and, especially in the USA. The current situation in the world market is characterized by the growing competition that naturally stimulates both companies to develop more effective strategies for the further growth and maintenance of the positive market performance. It should be pointed out that there is a little room for the maneuver of both companies because they are traditionally oriented on the oil and energy industry. In this respect, it is necessary to underline that oil is a scarce resource. Consequently, both companies need to gain the strategic advantage over competitors in order to survive in the international market.

At the same time, the scarcity of resources is another important factor that stimulates the competition between British Petroleum and Texaco. On the other hand, the booming oil prices make the oil and energy market still very attracting for both British Petroleum and Texaco, while if one of the company gains the dominant position in the world market, than its role in the international economic relations will be unprecedented. In such a situation, it is necessary to analyze the competitive position of both companies and develop recommendations that could help Texaco to improve its current position and gain the strategic competitive advantage over British Petroleum

On analyzing the current position of British Petroleum, it should be said that at the present moment the company occupies one of the leading positions in the world market. In fact, British Petroleum actively expands its presence in the international markets, increasing its presence in the most perspective regions of the world and increasing the competition with its major rivals. In this respect, it should be said that the company actively uses the strategy of mergers and acquisitions, which facilitates the penetration of British Petroleum into new markets in different countries of the world. Among the most successful mergers of British Petroleum, it is possible to name the merger with Amoco that occurred in December 1998 and until 2000 the company became BP Amoco (Volti, 2005).

At the same time, this acquisition is very symbolic since it reveals the major strategy of the company and, therefore its further perspectives of the development. In fact, the merger with Amoco opened the American market for British Petroleum, which actually acquired the network of gas station in the US after the acquisition of Amoco. Naturally, the merger strengthened the position of the company consistently in the American market. Among more recent, mergers and acquisitions, it is possible to name the creation of TNK-BP, the company based in Russia (Khor, 2006). British Petroleum owns 50% of the TNK-BP while the rest half of the company is owned by three Russian billionaires (Khor, 2006).

On the other hand, BP faces a problem of the pollution of environment. Leaking oil wells, such as in Alaska, explosions and accidents during the transportation of oil forces the company to fold its production in the US, as well as in the North Sea, where the resources of oil are exhausted.

Obviously, the international market expansion proves to be quite effective strategy that guarantees the growth of the company and the stable supply of natural resources. In this respect, the creation of the BP-TNK is extremely important for the further development of the company because it paves the way to Russian oil resources, which are very significant and constitute a substantial part of global oil resources. In order to understand the significance of TNK-BP for British Petroleum, it should be said that the company accounts for a fifth of British Petroleum’s global reserves, a quarter of BP’s production and nearly a tenth of its global profits (Khor, 2006).

Furthermore, the strategy of acquisitions and mergers is the main tool with the help of which British Petroleum attempts to enlarge its presence in the international market and strengthen its position. In such a way, it is obvious that using the strategy of acquisitions and mergers the company attempts to enlarge its presence on particularly perspective markets, such as the American one, and get access to new resources of oil, for instance in Russia. The latter is extremely perspective, taking into consideration that oil is a scarce resource.

b. BP’s social responsibility

Basically, social responsibility of BP is probably one of the major challenges to the current position of the company on international markets. In this respect, it should be said that the company is living the Colorado market that naturally will reduce the presence of the company in the American market and, in actuality, this trend growth stronger. In this respect, it should be said that along economic factors, such a change in the policy of BP is determined by the environmental problems, caused by accidents, deteriorate the public image of the company, creating additional pressure on the company from the part of the public. This is probably why the company decided to sell its petrochemical business, Innovene to INEOS, a privately held UK company. Also, it is possible to name a number of other accidents, such as an explosion that occurred at BP’s Texas City Refinery in Texas City, which is the third largest refinery in the US (Peters, 2007). In the result of the accident, over 100 people were injured and 15 were confirmed dead. In such a situation, BP has accepted that its mismanagement contributed to the accident (BP Accident Investigation Report, 2006). Moreover, next year there was a new accident related to BP. To put it more precisely, in March 2006, a leak in one of BP’s pipelines on the North Slope of Alaska caused a spill of oil onto the tundra, leading BP to commit to replace over 16 miles of federally regulated Oil Transit Lines (Tran, 2006).

Furthermore, the growing environmental concerns undermine the position of the company in developed countries, such as the US. In such a situation, the company faces a threat of the decreasing popularity of its brand that is a direct threat to the distribution of its products in many countries of the world, especially developed ones. This is actually why BP attempted to improve its public image in order to maintain the effectiveness of its distribution strategies. To put it more precisely, at the present moment the company attempts to demonstrate its social responsibility through the participation in various environmental programs and projects that may be viewed as a part of its distribution strategy since, in such a way, BP proves consumers that it is a reliable and social responsible company.

c. BP’s distribution strategies

Speaking about the current distribution strategies of BP, it is important to underline that they gradually become more and more customer-centric because customers play the determinant role in the presence of the company on the market. In this respect, it is possible to estimate that the company applies different distribution strategies in different countries of the world. As the company operates worldwide the diversity of distribution strategies is quite logical since it proves beyond a doubt that the distribution in developed countries will differ consistently from the distribution in developing ones, for instance.

In this respect, it should be said that the distribution strategy applied by BP in developing countries basically meet the social responsibility strategies, which target at, what S. Vachani and C.N. Smith defined as reaching the bottom of pyramid (2008). What is meant here is the fact that the company attempts to focus on the long-term development of its operations in developing countries. Basically, this strategy implies taking the long-term view and investing for the future. In terms of this strategy, the creation of BP-TNK may be a very important step in the development of the distribution chain of the company. To put it more precisely, the creation of this company has opened the access of BP to natural resources in Russia that naturally is extremely important for its distribution in global terms. Obviously, in the epoch of scarce resources the company needs the long-term development and investments in countries which could be the major suppliers of oil for other markets where BP operates. Consequently, such long-term investments are investments into the future of the company since having access to natural resources BP can maintain the stability of its distribution worldwide in the future.

Speaking about distribution strategies of BP in developed countries, they are more customer-centric and basically the company attempts to promote and distribute its products in such countries as the US, for instance, through active participation in environmental programs and sponsorship of sport events such as NASCAR series. As a result, the company’s product are promoted and positively perceived by the audience while the well-developed infrastructure and effective logistics facilitate consistently the distribution of products to mass customers.

Conclusion

Thus, taking into account all above mentioned, it is possible to conclude that the development of the distribution strategy may be one of the key factors of the commercial success of a company in the contemporary business environment. In this respect, it is necessary to remember about considerable changes that affect distribution strategies of companies. In the present epoch, companies are practically forced to choose multi-channel strategy or combine several strategies to distribute their products and services effectively, especially if they operate on the international level. In addition, it is necessary to remember about social responsibility of companies as an essential element of contemporary distribution strategies because it contributes consistently to the formation of a positive public image of a company that may be a determinant factor of their commercial success and positive market performance.